PENSION Maximising Investment Returns On N14.3trn Pension Assets

The rapid growth in pension assets over the years is not only attributed to monthly pension contributions of workers across the federation, investment returns is also crucial to the soaring pension fund.

In fact, findings shows that out of the over N14.3trillion pension pool, over N3 trillion are accrued profits from the investment of pension assets.

The introduction of MultiFund Structure into the pension scheme in Nigeria in July 2018 is meant to ensure that there is further growth in returns on investment of the pension fund in the country.

The new initiative is expected to increase investment returns to pension contributors and retirees.

Similarly, pension fund operators had earlier said they are eyeing other alternative investment options aside from the government bonds and treasury bills to increase returns on investment.

The CEO of the Pension Fund Operators Association of Nigeria (PenOp), Mr. Oguche Agudah, noted that, “pension funds need to invest more in other assets classes outside of the government bonds and treasury bills which are the safest. So, safety is the first option adopted when investing in any asset.

“Currently pension funds cannot invest in foreign bills because there are regulations which need to be approved by the government. However, we are looking out for other various outlets and areas where the funds can be invested; areas like private equity, but the honest truth is that we need to balance between safety and returns. Notwithstanding, the industry is looking at other alternative investment instruments.”

Looking to optimise investment returns on pension assets for Retirement Savings Account (RSA) holders, the Pension Fund Administrators (PFAs) diverted over N900 billion from the proceed of the matured Open Market Operations (OMO) bills into the equities market in 2020.

Investigation revealed that increased investment by PFAs in the equities market in 2020 was as a result of the crash in treasury bills rates, which was chiefly due to the several expansionary monetary policies aimed at stimulating economic growth. The operators, in their proactive nature, had always pulled out from investment portfolio that is going bad into a lucrative one which was responsible for this move.

Investment returns, amounting to over N3 trillion of the pension fund assets, were largely driven by investments in bonds market, with 70 per cent of the assets invested in bonds.

But a drastic fall in yields 2020 has got pension operators think twice before reinvesting their matured Funds in the bonds, hence, found investment haven in the capital market.

Capital Market Investment

According to Mr. Wale Odutola, who is also the managing director/CEO, ARM Pensions, “Pension fund operators have always invest in the equities market, even though, one needs to be careful. Capital market is a volatile environment with price fluctuation. Just as you can make huge profit, so also, you can make huge loss if care is not taken.

“So, each PFA has different investment strategies and they always invest in investment outlets according to what suits their investment strategies. So, capital market is an investment outlet that we are looking at, so also is fixed income, government securities, money market instruments and so on.”

He said, though, the safety of the pension fund assets is germane to operators, they are also concerned about investment returns to pension contributors, adding that, the growth of the pension assets in recent years was attributable to investment returns rather than contributions.

This, he said, shows that operators are investing wisely, by adhering to the pension industry investment guidelines as stipulated in the Pension Reforms Act (PRA) 2014.

However, this year, emphasis of investment has been in the Bank Placement for better investment returns.

Bank Placement

The pension funds managers have invested N2.27trillion from the 14.3trillion into money market instruments comprising of fixed deposits in banks, commercial papers as well as foreign money market instrument, as at the end of July, 2022, NATIONAL ECONOMY learnt.

While investment of pension fund in fixed deposits took the larger chunk of this investment accounting for N2trillion, commercial papers accounted for N157.7billion even as foreign money market instrument was N39.9billion as at the end of July, 2022.

In June 2022 where Money Market instruments accrued N2.14trillion, Fixed Deposit attracted N1.89trillion and in May, 2022, this instrument accounted for N2.20 trillion of the pension assets as Fixed Deposits amounted to N1.95trillion of this fund.